OCT  ~ 8 1315 

Reprinted  from  The  Annals  of  the  American  Academy  of  Political  and  Social 
Science,  Philadelphia,  September,  1915. 

Publication  No.  924. 


AMERICAN  EXPORT  POLICIES 
By  Franklin  Johnston, 

Co-Publisher,  American  Exporter. 

American  success  in  exporting,  too  often  depreciated  and  ig- 
nored, has  been  won  largely  by  manufacturers  of  highly  specialized 
lines — individual,  distinctive  merchandise,  or  machinery  sold  under 
brands.  I speak  advisedly  for  daily  I am  in  close  touch  with  the 
export  work  of  over  six  hundred  manufacturers  of  such  lines  doing  a 
substantial  foreign  business,  many  of  whom  have  been  doing  so  for 
years. 

A recent  census  of  these  manufacturers,  for  whom  and  with 
whom  we  are  working,  showed  that  the  average  rating  is  $298,000, 
as  listed  in  one  of  the  mercantile  agency  books.  Of  these  18  per  cent 
are  rated  up  to  and  over  $1,000,000  each;  50  per  cent  at  less  than 
$100,000  and  20  per  cent  at  less  than  $35,000.  This  is  of  interest  as 
showing  that  the  small  manufacturer  of  distinctive  articles  is  under 
no  insurmountable  difficulties  in  export  trade. 

In  South  America,  the  three  chief  export  competitors  meet  on 
more  nearly  equal  terms  than  anywhere  else  in  the  world.  There 
has  been  a greatly  exaggerated  idea  in  this  country  of  the  extent 
to  which  Germany  dominated  the  markets  of  South  America, 
before  the  war.  That  she  had  a very  large  and  important  share  of 
4 that  trade  cannot  be  denied,  but  it  was  no  larger  than  our  own,  and 
not  as  large  as  Great  Britain’s.  The  United  States  exports  more 
^merchandise  to  Latin  America  than  does  any  other  nation.  Here 
in  the  briefest  possible  form  is  the  record  of  Latin  American  trade 
.in  1913: 

Exports  to  Latin  America  from  the  United  States,  $325,837,345. 

Exports  to  Latin  America  from  Great  Britain  and  Ireland,  $322,228,073. 
Exports  to  Latin  America  from  Germany,  $217,967,202. 

The  margin  over  Great  Britain  is  somewhat  slight  to  be  sure, 
nit  over  Germany,  of  whose  export  prowess  we  hear  so  much  more 
^han  of  Great  Britain’s,  it  is  in  round  figures  $100,000,000.  Our  ex- 
orts  to  the  Argentine  have  grown  from  less  than  $10,000,000  in  the 
ear  1902  to  over  $50,000,000  in  1913,  while  those  to  Brazil  grew 

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from  $10,000,000  to  $42,000,000,  and  those  to  Uruguay  from 
$1,500,000  to  $7,500,000. 

Instead  of  having  a negligible  share  of  the  trade  to  those 
countries  as  many  would  have  us  believe,  we  supply  Argentina  with 
15  per  cent  of  all  she  buys,  while  Great  Britain  furnishes  her  with 
30  per  cent,  and  Germany  supplies  16  per  cent.  Of  Great  Britain’s 
exports  to  Argentina  one-fifth  is  coal  alone.  In  the  case  of  Brazil 
we  sell  her  15  per  cent  of  her  total  imports  as  against  25  per  cent 
from  England  and  17  per  cent  from  Germany,  Germany’s  export 
trade  with  Brazil  being  $4,000,000  larger  than  our  own. 

Our  trade  with  these  countries  has  grown  hand  in  hand  with 
that  of  Germany  and  Great  Britain.  If  a chart  is  drawn  showing 
the  growth  of  the  export  trade  of  the  three  great  rivals  in  either 
Argentina  or  Brazil  for  the  past  ten  or  fifteen  years  the  general 
curve  upward  of  the  English  lines  will  be  paralleled,  somewhat  below 
to  be  sure,  by  the  American  and  German,  and  the  German  and 
American  lines  will  touch  and  even  cross  each  other,  at  times,  so 
close  has  been  the  rivalry. 

Under  normal  conditions  we  have,  therefore,  as  large  an  export 
trade  with  Argentina  and  Brazil  as  Germany,  and  that  trade  has 
grown  just  as  fast,  indeed  at  times  faster,  than  that  of  either  Ger- 
many or  Great  Britain.  It  must  be  said,  however,  that  Germany’s 
trade  is  more  diverse  than  either  Great  Britain’s  or  our  own. 

What,  then,  is  the  reason  for  the  persistent  popular  impression 
that  our  trade  with  South  America  is  negligible? 

That  impression  is  founded  on  the  fallacy  that  American  ships 
and  foreign  branches  of  American  banks  are  a necessary  preliminary 
to  extending  American  trade.  American  manufacturers  are  under 
no  handicap  as  regards  shipping  and  banking  in  developing  their 
trade  with  Latin  America.  When  American  manufacturers  find 
themselves  unable  to  sell  abroad  the  fault  usually  lies  not  with  the 
ships  and  banks  but  with  the  goods,  the  costs  of  production,  or 
inefficient  selling  methods. 

British  export  trade  is  won  chiefly  by  quality;  German,  by 
cheapness;  American,  by  inventive  and  mechanical  genius  plus 
large-scale  production,  ’which  makes  for  moderate  prices.  Each  of 
the  three  competitors  has  strong  points,  and  each  has  weak  points. 
British  quality  usually  means  high  cost,  and,  when  durability  is 
aimed  at,  often  means  a solidity  that  is  carried  to  an  absurd  degree. 


American  Export  Policies 


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The  competing  American  article  is  lighter,  more  graceful  and  cheaper. 
The  competing  German  article  is  too  often  an  imitation  of  the 
British  or  American  sold  at  a much  cheaper  price,  and  on  terms 
which  an  Argentine  gentleman  spoke  of  some  time  ago  as  “ insane 
credits.”  Price  is  the  poorest  sales  argument,  and  people  have 
almost  forgotten  that  many  German  lines  had  far  better  claims  to 
distinction.  German  export  success  has  been  marvelous  but  it  has 
not  been  altogether  a healthy  growth.  “Made  in  Germany”  has 
come  to  convey  the  sense  of  cheap,  shoddy  goods,  and  even  of  imi- 
tations. 

This  has  been  recognized  nowhere  more  than  in  Germany.  In 
1913,  a “German  Export  Association  of  High  Quality  Manufac- 
turers” was  formed  to  combat  the  cheap  price  reputation  of  Ger- 
many abroad  and  its  ideal  at  home.  Its  president  said : 

The  systems  of  the  English,  French,  hut  principally  of  the  American  and 
Swedish  trade,  have  been  based  from  the  very  start  on  the  prestige  and  standing 
of  the  manufacturer,  who  must  always  take  the  responsibility  for  quality  and  rea- 
sonable prices  of  his  products.  Against  the  strong  organizations  of  foreign 
manufacturers,  small  industries  prevail  in  Germany  which  do  not  strive  so  much 

for  quality  as  for  cheap  prices German  manufacturers  apparently 

know  of  only  one  argument,  and  that  is  low  prices.  But  when  prices  decrease, 
quality  also  becomes  inferior. 

Another  serious  fault  in  German  export  methods  has  been  an 
unwise  over-extension  of  credits. 

The  “long”  credits  of  South  America  have  been  greatly  exag- 
gerated in  American  discussions.  So  has  the  alleged  refusal  of 
American  manufacturers  and  merchants  to  extend  credits.  As 
aptly  phrased  by  the  president  of  the  United  States  Steel  Corpora- 
tion, Mr.  James  A.  Farrell,  who  for  many  years  was  at  the  head  of 
that  corporation’s  export  subsidiary: 

Wherever  there  is  a substantial  basis  for  credit,  American  manufacturers 
will  not  be  found  lacking  in  devising  means  to  grant  reasonable  and  proper  accom- 
modations. It  will  be  invariably  found  that  where  extended  credits  are  given, 
the  seller  charges  an  increased  price,  and  the  buyer  does  not  benefit  to  the  extent 
to  which  prompt  payment  entitles  him. 

Not  only  does  he  pay  an  increased  price,  either  visible  or  in- 
visible (by  decreased  quality),  but  the  whole  structure  of  commerce 
in  any  given  market  is  shaken  when  credits  are  given  unwisely,  for 
sooner  or  later  such  over-extension  brings  about  a smash.  This 
occurred  in  South  America,  notably  in  Argentina  and  Brazil,  and 


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those  countries  which  were  just  recovering  from  the  effects  of  whole- 
sale liquidation  and  bankruptcies,  similar  to  some  of  our  own  finan- 
cial depressions,  when  the  war  broke  out.  Commercial  failures  in  the 
Argentine  in  1913  were  twice  as  large  as  in  1912,  three  times  as 
large  as  1911,  four  times  as  large  as  1910.  The  opening  months  of 
1914  showed  a still  greater  commercial  mortality,  and  the  total 
liabilities  for  the  year  were  more  than  double  those  of  1913.  This 
financial  disturbance  came  as  a result  of  easy  credits  at  a time  when 
land  speculation  had  become  almost  a mania,  the  bubble  being 
pricked  by  a series  of  bad  crops.  American  conservatism  in  granting 
credits  has  been  justified  in  part  at  least  by  such  events,  and  German 
eagerness  to  extend  unwise  credits  has  proved  disastrous  alike  to 
her  and  her  debtors. 

To  a large  extent,  the  financial  crisis  before  the  war  and  the 
rapid  changes  brought  about  by  the  war  have  brought  a new  com- 
mercial generation  in  the  Argentine.  Old  houses  have  liquidated, 
partners  retired,  old  connections  been  severed,  new  ones  formed, 
new  houses  opened.  This  new  generation  cannot  buy  German  goods, 
nor  even  the  allotted  amount  of  British  or  French,  and  will  necessarily 
buy  American  goods.  Germany’s  unwise  credits  have  fallen  like 
a house  of  cards  and  in  the  reconstruction  of  the  commercial  struc- 
ture she  will  have  no  part  for  some  time  to  come.  When  Germany 
again  competes  for  South  American  business  it  will  be  on  a far 
healthier  basis,  with  less  talk  of  cheapness  and  more  of  quality,  and 
with  far  more  conservatism  in  extending  credits.  Meanwhile  the 
virtues  of  slightly  more  expensive  competing  American  goods  will 
be  established.  This  change  in  Germany’s  export  policy  was  in- 
evitable sooner  or  later  but  it  has  been  hastened  by  the  war,  and  the 
war  has  enormously  intensified  the  lesson  of  over-extension. 

Mention  has  been  made  of  the  application  of  the  Sherman  law  to 
export  trade.  As  we  know,  combinations  to  control  output  and  fix 
prices  in  many  staple  lines  sold  on  a close  competitive  margin  of 
price,  and  not  capable  of  being  exploited  along  the  lines  that  highly 
specialized  lines  are,  are  permitted  and  even  encouraged  in  Europe. 
Such  lines  as  manufactures  for  further  use  in  manufacturing,  and 
crude  materials — steel,  copper,  wire  nails,  cement,  cheap  paper, 
cordage,  etc. — might  be  mentioned.  It  would  seem  as  though  our 
manufacturers  in  such  lines  ought  not  to  be  forced  to  act  under  legal 


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restrictions  to  which  their  foreign  competitors  are  not  liable,  pro- 
vided unfair  practices  were  not  employed. 

The  Clayton  Act  as  originally  drawn  would  have  made  illegal 
nearly  every  customary  method  of  developing  export  trade.  These 
methods  are  not  peculiar  to  this  country,  but  are  world-wide.  Their 
morality  is,  it  seems  to  me,  not  to  be  questioned.  They  comprise 
ordinary  agreements  under  which  patented  articles  may  be  sold, 
and  both  maker  and  dealer,  or  agent,  protected.  A vigorous  nation- 
wide protest  from  small  manufacturers  as  well  as  large  ones, 
resulted  in  export  trade  being  specifically  exempted  from  the 
provisions  of  the  Clayton  Act. 

Recently  the  federal  courts  have  found  for  the  defendants  in  a 
number  of  actions  brought  by  the  government  under  the  Sherman 
law.  Among  such  decisions  was  that  in  the  case  of  a number  of 
steamship  lines  operating  to  Brazil.  Freight  is  a commodity,  no 
less  than  steel  rails  or  copper.  To  allow  steamship  owners  to  com- 
bine to  fix  freight  rates  on  steel  products,  and  to  forbid  steel  products 
manufacturers  to  combine  to  fix  prices  on  their  products  is,  on  the 
face  of  it,  absurd  and  unjust.  Its  absurdity  is  hardly  diminished  by 
the  fact  that  most  of  the  steamship  lines  are  owned  abroad,  so  that 
American  manufacturers,  “trusts”  or  “independents,”  are  encour- 
aged to  practice  cut-throat  competition,  while  the  steamship  lines 
maintain  profitable  freights,  and  share  the  benefits  with  foreign 
buyers  and  foreign  manufacturers  who  are  allowed  to  take  joint 
action  as  they  see  fit. 

Disappointment  has  been  expressed  because  small  manufac- 
turers show  such  a lack  of  interest  in  the  arguments  urging  the  bene- 
fits of  combination  for  export  trade.  This  may  be  attributed  to  the 
fact  that  small  manufacturers  of  highly  specialized  lines,  of  articles 
sold  under  brands  or  trade  marks,  such  as  engines,  machinery, 
typewriters,  shoes,  sewing  machines,  haberdashery,  automobiles, 
bicycles  and  scores  of  other  lines  have  never  felt  the  need  of  such 
combinations  for  themselves,  although  they  may  be  in  favor  of  them, 
in  principle.  In  short,  the  small  manufacturer  may  recognize  the* 
force  of  the  arguments,  but  the  subject  has  an  academic  interest 
chiefly.  He  has  succeeded  in  export  business  by  individual  effort. 
The  difficulties  of  forming  a cooperative  export  organization  in 
certain  lines  would  be  almost  insurmountable,  with  no  guarantee 
that  the  results  would  be  satisfactory.  A poorly  managed  combina- 


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tion  would  break  down  under  its  own  weight,  as  many  “trusts, ” 
department  stores  and  chain-store  organizations  have,  while  their 
more  efficient,  though  smaller,  rivals  have  prospered.  Hence,  it 
may  be  doubted  whether  express  governmental  permission  to  com- 
bine for  export  trade  would  meet  with  any  immediately  marked 
response  from  small  manufacturers  of  specialized  lines.  This  is  not 
to  deny  that  the  instinct  of  avoiding  ruinous  competition  is  not 
growing  in  strength. 

Inadvertently,  much  of  the  discussion  on  this  topic  has  given 
an  entirely  erroneous  impression  as  to  the  difficulties  “small” 
manufacturers  have  to  contend  with  in  establishing  an  export 
business.  It  will  be  found  that  ample  facilities  for  export  distribu- 
tion are  available  for  the  manufacturer  of  specialized  lines.  For 
such  lines,  large  initial  expense  to  develop  foreign  trade  is  rarely 
necessary,  or  even  advisable.  Elaborate  foreign  selling  organiza- 
tions for  the  average  manufacturer  would  not  only  be  unnecessary, 
generally  speaking,  but  positively  detrimental,  because  the  impor- 
tant distributing  factors  would  be  antagonized  at  the  start,  and 
would  be  in  a well  intrenched  position  to  retaliate. 

In  England,  Germany  and  the  United  States  there  are  numerous 
facilities  to  help  manufacturers  in  their  export  distribution,  where 
the  manufacturers  are  not  in  a position  to  do — as,  of  course,  they 
very  rarely  are  in  a position  to  do — all  the  distributing.  Large 
importers  act  as  local  distributors.  The  average  manufacturer 
receives  more  or  less  of  his  export  orders  from  the  importers,  not 
direct  but  through  the  export  commission  houses,  although  he 
works  up  the  business  direct  by  some  form  of  solicitation. 

Even  when  a manufacturer  employs  one  or  more  foreign  travelers 
many  of  the  orders  are  passed  through  the  hands  of  the  export  com- 
mission houses,  and  paid  for  by  them,  and  in  some  cases  manufac- 
turers insist  on  all  orders  being  so  handled.  Where  export  orders 
are  paid  for  by  the  export  commission  merchant,  for  the  account 
of  foreign  importers,  it  becomes  as  nearly  cash  business  as  the 
American  manufacturer  can  secure  at  home  or  abroad.  Although 
the  tendency  to  do  a direct  business  is  constantly  increasing — and  in 
some  markets,  such  as  certain  European  ones,  is  the  rule  rather  than 
the  exception — very  many  importers,  as  well  as  manufacturers, 
prefer  this  method  of  business  and  probably  always  will. 

The  proportion  of  export  business  passed  through  these  houses 


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as  brokers,  so  to  speak,  depends  on  the  character  of  goods,  character 
and  location  of  market  and  various  other  circumstances.  No  set 
rule  can  be  made  to  apply. . In  London  there  are  1,596  export  mer- 
chants; in  Hamburg,  1,189,  while  in  New  York  there  are  605  export 
commission  merchants,  180  buying  offices  for  foreign  merchants  or 
industrial  concerns  and  128  manufacturers’  export  agents  or  mana- 
gers. Export  agents  perform  many  of  the  functions  of  the  commis- 
sion houses,  but  are  paid  by  the  manufacturer  instead  of  by  the 
foreign  merchant.  In  recent  years  there  has  been  a marked  ten- 
dency for  the  commission  houses  to  take  up  special  agencies.  It  will 
be  seen,  therefore,  that  in  all  three  countries  the  export  merchant 
is  a distinct  factor  and  that  he  is  no  less  in  evidence  in  England  and 
Germany  than  here.  Yet  the  very  existence  of  the  export  commis- 
sion houses  is  all  but  ignored  by  the  American  government  officials 
in  discussing  foreign  trade,  and  this  has  caused  a good  deal  of  mis- 
understanding. 

The  establishment  of  branch  offices  or  warehouses  abroad  on  the 
part  of  manufacturers  is  the  exception,  not  the  rule,  in  export 
trade.  A theory  that  manufacturers  must  open  branch  houses  in  all 
the  world’s  markets,  in  order  to  do  business,  would  lead  even  the 
more  than  average  sized  manufacturer  to  bankruptcy.  American 
export  trade  in  manufactured  goods  is  shared  by  thousands  of 
manufacturers,  big  as  well  as  little,  little  as  well  as  big,  and  of  those 
thousands  it  is  doubtful  whether  more  than  twenty  have  their  own 
local  branches,  carrying  stocks,  in  Buenos  Aires,  for  instance.  With 
rare  exceptions,  the  manufacturer,  British,  German  and  American, 
whatever  his  size,  finds  it  more  economical  and  more  profitable  to 
let  others  perform  some  of  the  functions  necessary  to  get  the  goods 
from  factory  to  foreign  consumer.  No  manufacturing  corporation, 
however  large,  has  its  own  sales  organization  in  all  markets,  although 
two  or  three  come  very  close  to  it,  including  one  American  oil  com- 
pany and  one  American  sewing  machine  company. 

In  Buenos  Aires,  for  instance,  there  are  just  forty-four  American 
business  houses  other  than  industrial  plants.  These  forty-four 
comprise  all  the  American  dealers,  the  American  importers  and  ex- 
porters, as  well  as  the  local  branch  offices  of  American  manufac- 
turers. There  are  one  hundred  and  sixty-three  British  business 
houses  in  Buenos  Aires  and  two  hundred  and  ninety-nine  German, 
and  in  view  of  the  large  number  of  merchant  importers  of  those 


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nationalities  domiciled  in  Buenos  Aires,  it  is  evident  that  few 
manufacturers  of  those  countries  can  have  branches  in  Buenos 
Aires,  or  the  total  number  of  business  houses  credited  to  them 
would  be  very  much  larger.  This  may  be  better  appreciated  when 
it  is  realized  that  there  are  29,690  business  houses  in  Buenos  Aires 
exclusive  of  industrial  or  manufacturing  plants,  and  of  this  number, 
which  included  the  retail  establishments,  12,383  are  Italian,  7,822 
Spanish  and  4,358  Argentine.  These  figures  are  from  a recent  in- 
dustrial census  taken  of  Buenos  Aires,  as  reported  in  Commerce 
Reports  published  by  the  Department  of  Commerce. 

The  number  of  American  manufacturers  having  their  own 
salaried  exclusive  representatives  permanently  in  Buenos  Aires 
carrying  no  stock,  and  selling  to  larger  houses,  wholesalers  chiefly, 
is  only  a trifle  larger  than  those  having  their  own  branches.  It  is 
impossible  to  fix  the  exact  number,  but  a liberal  estimate  would  be 
seventy-five.  The  number  of  British  or  German  exclusive  repre- 
sentatives may  be  estimated  as  proportionately  the  same.  If 
Argentina  has  so  few  branch  establishments  and  exclusive  repre- 
sentatives, what  must  be  the  case  in  smaller  markets  such  as  Chile, 
Peru,  the  Amazon  district  of  Brazil,  or  even  Rio  de  Janeiro?  There 
are  not  a dozen  American,  British  or  German  manufacturers  who 
maintain  their  own  branches  with  stocks  in  all  Brazil,  and  less  in 
Chile  or  Peru.  Moreover,  while  in  certain  trades  one  or  two  manu- 
facturers have  their  own  foreign  branches,  their  competitors  also  do 
a large  export  business.  For  instance,  one  American  typewriter 
company  has  its  own  retail  branch  in  Buenos  Aires.  Other  Ameri- 
can typewriters  are  equally  as  well-known  in  the  Argentine  market, 
although  their  distribution  is  done  by  local  dealers.  A famous 
sewing  machine  company  has  its  own  retail  branches  not  only  in 
Buenos  Aires,  but,  seemingly,  in  every  town  of  even  slight  importance 
throughout  Latin  America.  Yet,  other  American  sewing  machine 
companies  do  a large  business  in  the  same  markets. 

Cooperative  foreign  selling  agencies  in  non-competing  lines 
are  by  no  means  a new  thing  in  export,  although  comparatively 
rare.  Five  large  hardware  manufacturers  in  Philadelphia  have  such 
an  organization.  Some  twenty  manufacturers  of  printers’  supplies, 
paper,  etc.,  have  one.  That  particular  line  is  one  which  seemingly 
offers  an  especially  good  field  for  such  a plan.  There  can  be,  of 
course,  no  legal  objections  to  such  export  combinations  as  that. 


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Nor  can  there  be  any  economic  objection,  for  in  theory  such 
organizations  are  sound.  But  in  practice  the  difficulties  of  securing 
the  right  personnel,  overcoming  the  opposition  of  local  importers, 
and  satisfying  all  the  constituent  manufacturers,  some  of  whom  are 
bound  to  feel  that  their  share  of  the  sales  is  less  than  their  share  of 
the  expense,  are  so  great  as  to  make  its  general  success  not  perhaps 
impossible,  but  certainly  difficult. 

On  the  other  hand,  there  are  numerous  business  houses  all 
over  the  world  which  perform  practically  all  the  functions  which 
such  an  organization  could,  at  a minimum  of  cost  and  risk  to  the 
manufacturers.  These  houses  are  firmly  established,  and  their 
experience,  personnel,  capital  and  intimate  knowledge  of  local  con- 
ditions, make  them  by  far  the  best  channel,  in  most  cases,  for  local 
distribution  of  merchandise.  The  Clayton  Act,  as  has  been  pointed 
out,  exempts  from  its  provisions,  arrangements  between  manufac- 
turers and  agents  or  dealers  as  regards  export  trade,  and  that  exemp- 
tion was  wisely  made. 


